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The Morning Skate: The New Mess in the Desert

By Stu Hackel May 6, 2009 2:14 pmMay 6, 2009 2:14 pm

It’s for you: BlackBerry billionaire Jim Balsillie wielding the fortune-making device that is enabling him to bid $212.5 million for the Phoenix Coyotes. On Tuesday Balsillie said he wants to move the club, which filed for Chapter 11 bankruptcy protection earlier in the day, to Southern Ontario. The N.H.L. is not happy. (EPA/STR)

Armed with stealth and buckets of money, Research in Motion C.E.O. Jim Balsillie has struck again, taking a third run at buying an N.H.L. team. This time his target is the Phoenix Coyotes, and if he gets his way, the purchase will go through and he’ll move them to Southern Ontario, perhaps Hamilton.

But standing in his way is N.H.L. Commissioner Gary Bettman and, most likely, a majority of league owners, first among them the owners of the Maple Leafs and Sabres.

Ordinarily that would be enough to keep someone from gaining control of a franchise and relocating it wherever he or she wants. But the Coyotes began life as the Winnipeg Jets in the World Hockey Association, and besides three Avco World Trophy Championships, their DNA is stamped with legal wranglings, political quagmires, fiscal difficulties and geographic rootlessness — all of which is to say very little is ever certain about this franchise.

Their tangled tale (the subject of a January Morning Skate) has knotted yet again. How it gets untied and by whom is an open question with broad ramifications.
First, here’s what is known: The league has been searching for an owner for this club for a while. The Coyotes have been owned by trucking magnate Jerry Moyes, who has been hemorrhaging funds to such a great enough extent — Craig Harris in The Arizona Republic today put that figure at $310 million. — that the league has had to front him money — reportedly $35 million — to keep the operation going.

Stories have circulated for months that a number of people and groups examined the Coyotes’ books and looked at their lease agreement for the Jobing.com Arena in suburban Glendale (which, as was pointed out here in January, is not the greatest place in the region for a hockey team in the first place). Most of these parties apparently concluded that buying the Coyotes was, at best, too risky a proposition.

Meanwhile, the news media, especially in Canada and most especially the Globe and Mail, which has long championed Balsillie’s crusade to purchase an N.H.L. team, mined their sources and brought to light a range of issues surrounding the club’s tenuous financial status. Some were even speculating that the team would go belly-up at midseason; on “Hockey Night in Canada,” the Hotstove panel went so far as to speculate about how the dispersal draft of players would be conducted.

That brought a harsh response from the N.H.L., with Bettman front and center. At various points the league denied there were problems with the club, charged the media with fomenting hysteria, or said an orderly process was in progress to find a new buyer and there was a good deal of interest from potential new owners.

Central to the league’s position was the principle of the Coyotes not moving, in part because breaking the lease on the arena would probably prove legally and financially disastrous to the principals; in part because the league currently likes its “geographical footprint”; and in part because it looks unfavorably upon franchise relocation, which reverses its stance of the mid-’90s when it was all the rage. (The Coyotes were one of the clubs relocated, in 1996 from Winnipeg.)

Apparently, the league was successful in finding people prepared to take a chance on the Coyotes. Darren Pang said on TSN last night (video) that there were three pending offers being weighed. Moreover, Bob McKenzie reported last night on TSN: “N.H.L. commissioner Gary Bettman was in Phoenix today, ostensibly to put the finishing touches on an intent-to-purchase agreement from Chicago White Sox owner Jerry Reinsdorf, whose intention was to apparently keep the financially troubled Coyotes in their current home of Glendale, which is also home to Reinsdorf’s spring-training baseball facility” — it’s a mile away from the Coyotes’ rink.

“That offer was expected to materialize within the next few days,” McKenzie wrote. The amount Reinsdorf was offering has not been disclosed.

Enter Balsillie, the billionaire owner of RiM, the makers of the BlackBerry, who has previously angered the N.H.L. brass by backing out of a deal to buy the Penguins and trying to purchase the Nashville Predators and move them to Southern Ontario, even going so far as to set up a ticket sales operation in that region prior to having the Board of Governors take any action on his request to purchase the club.

It seems that Moyes was in contact with Balsillie. It is possible that Moyes told Balsillie what the offer from Reinsdorf would be, enabling Balsillie to produce a $212.5 million bid for the club, which McKenzie suspects surpasses the offer Reinsdorf was prepared to make.

Balsillie has an important condition in his offer, however: that he be permitted to relocate the club to Southern Ontario.

Suddenly, Pang says, an e-mail message appeared in the office of Coyotes president Doug Moss at 3:37 p.m., notifying Moss that a sale was near completion — and that the sale was not to Reinsdorf. But in a conflicting report, Harris in The Arizona Republic says something different happened around that time: that Moyes’s legal and financial adviser, Earl Scudder, notified the N.H.L. that Moyes was filing Chapter 11 bankruptcy for the club.

Either way, the league was thunderstruck. In a statement, Bill Daly said, “We have just become aware of today’s Bankruptcy Court filing purportedly made on behalf of the Phoenix Coyotes. We are investigating the circumstances surrounding the petition, including the propriety of its filing. We have removed Jerry Moyes from all positions of authority to act for or on behalf of the Club. The League will appear and proceed before the Bankruptcy Court in the best interests of all of the Club’s constituencies, including its fans in Arizona and the League’s 29 other Member Clubs.”

Why did Moyes declare bankruptcy? McKenzie writes, “As the team’s largest unsecured creditor to the tune of more than $100 million – unsecured creditors only get proceeds from the sale after secured creditors are looked after – Moyes knew his best chance of getting remuneration was with a bankruptcy-induced sale proposal from Balsillie.”

Scudder told Harris that Moyes “didn’t have a lot of choices. He had gone through extensive marketing efforts and was unable to get offers for the team that would take care of the creditors.”

But Harris also reports that Glendale City Councilman Phil Lieberman told him that bankruptcy was the one thing that could trump the penalties the Coyotes would incur for breaking their lease and allow the club to move elsewhere.

McKenzie’s research indicates that with the club in Chapter 11, the future ownership is up in the air: “The bankruptcy court is obliged to accept the highest offer that provides the best financial relief to the secured creditors, which ironically includes the N.H.L. as the second largest ($35 million).” Balsillie’s bid is currently the highest, and legally he can be outbid by another party, but “if anyone chooses to outbid Balsillie, they must do so by at least $5 million. … It is unfathomable to think anyone would make the $217.5 million offer to keep the team in Phoenix.”

And in The Globe and Mail, Sean Gordon and David Shoalts report that Balsillie has “has posted $17 million (all figures U.S.) in debtor-in-possession financing to keep the team afloat during bankruptcy proceedings. That puts Balsillie at the head of the line when it comes to creditors, ahead of the N.H.L. — which has been bankrolling the cash-hemorrhaging team for months — and the team’s bankers.”

And yet, Balsillie’s demand to move the club to Canada may throw the process into massive confusion.

“The question then becomes, can a bankruptcy court in Arizona mandate the N.H.L. to relocate or transfer a franchise in order to satisfy the needs of the Coyotes’ secured creditors?” McKenzie writes. “It’s an interesting legal question, and without putting words in anyone’s mouth – no one is commenting anyway – the safe bet is that Balsillie’s group believes that’s a possibility while the N.H.L. doesn’t believe a bankruptcy court can tell it how to conduct its affairs.”

Meanwhile, the N.H.L. understandably went berserk. In their view, they had worked hard trying to find Moyes a buyer, loaned him money to stay afloat, and he then goes behind their backs and puts the wheels in motion to undo their work and sell the club to a man who has been an antagonist to both the league office and many in ownership.

The Leafs and Sabres do not want another club in their territory. There are provisions in place in the league bylaws that protect franchises from encroachment, and many other owners — though not all — are likely to jump to their defense.

To complicate matters further, N.H.L.P.A. executive director Paul Kelly has said often in the past months that another team in Southern Ontario would be a good thing for the game, since it would certainly be a financially healthy operation that would contribute significant revenues to the league’s bottom line.

Balsillie spoke at a hastily assembled news conference last night (transcript and video) that lasted all of five minutes, for which Gordon and Shoalts implied Balsillie commandeered a room at the Metro Toronto Convention Centre without booking it. He distributed a press release and announced he has set up a web site to promote his campaign to bring a seventh N.H.L. team to Canada.

“Balsillie wouldn’t comment on the N.H.L.’s response,” Gordon and Shoalts reported, “insisting it was a matter for the courts, and when asked if the league’s position amounted to a declaration of war, Balsillie thanked everyone and left the room.”

There’s a big difference, in my limited view, between the League owners turning away Basillie’s purchase of Nashville and turning away this purchase. The Nashville Debacle was (probably) accomplished by getting then-Nashville owner Craig Leopold to accept less than Basillie’s offer, perhaps with promise of an easy transition when Leopold wanted to purchase the Wild.

With Nashville, the NHL wasn’t ponying up $300 million dollars – in year one alone. If Im an owner in Washington, why would I be concerned if there’s another team in Southern Ontario? Why would I agree to keep paying millions of dollars of my own team’s money to keep someone in Phoenix afloat, when there’s a ready, willing, and able buyer there to stem my bleeding? I wonder how anxious a team like the Rangers would be to tow Bettman’s party line? What do the Rangers have to fear? More NHL control of their website? A 4th metropolitan team in Brooklyn?

As far the ability of the owners to STOP the move after a sale (assuming it doesnt get derailed in bankruptcy first), the NHL’s Relocation Policies were reviewed by the Canadian Competition Bureau back in the days of the Nashville mess. Its a very interesting read as to what the NHL Bylaws allow and do not allow with regard to teams relocating. http://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/02640.html

Interesting and relevant passage:

“The Bureau understands that applications for relocation of NHL franchises are considered as a last resort when a team is no longer financially viable in its present location or is unable to secure appropriate arrangements for arena facilities. As outlined in greater detail above, restrictions on the relocation of a franchise can serve a number of legitimate interests of the league; including, ensuring spectator interest by preserving traditional team rivalries and encouraging investment by municipalities in arena construction and related infrastructure.

The Bureau found no instance where a “veto” was exercised by an incumbent team to protect its local territory from entry by a competing franchise. Since at least 1993, *no franchise has been permitted to exercise a veto to prevent a team from entering into its local territory.* Further, under the NHL’s rules and procedures, in respect of the proposed relocation of a franchise to Southern Ontario, *the NHL would not permit any single team to exercise a veto, but would only require a majority vote.* The Bureau may have concerns under the Act if a single team were entitled to exercise a veto to prevent a franchise from entering into its local region within Canada, but such concerns would have to be evaluated having regard to the facts and law applicable at the time such an event occurred.

So, perhaps the “majority” of the NHL owners wouod be more willing to agree to allow the relocation to Southern Ontario, especially if they themselves might soon find themselves in a situation where they are looking for a buyer under dire financial conditions, and too bad what Toronto and Buffalo want?

saget – Thanks for your comment. A couple of points: The league has not ponied up $300 million, but only about one-tenth of that. Not that $34 million is insignificant, but that’s the picture. It’s Moyes who sunk $300 million into this operation.

Secondly, I don’t think bringing up the Rangers as an example of how NHL clubs will follow Bettman is a representative example of the majority of teams in the league. Although there has been a lessening of tensions between the two from what I can gather, their previous antagonism is known. But what many of Bettman’s critics never seem to get is that he rarely makes moves like this without having the blessings of ownership. He does not rule over the league in a vacuum and drag the clubs along with him. It doesn’t work like that. I think the owners are part of his decision making process and I also think the dislike for Balsillie and his tactics is shared by a good number of them. Something like this won’t win him any new friends among the owners and may cost him some allies, especially if the courts end up awarding the team to him rather than the owners voting him in.

The passage you cite from Competition Bureau is correct, insofar as teams do not have veto power. But the Leafs and Sabres can certainly appeal to their fellow owners if this ever came up for a vote. And I’m certain Mr. Balsillie’s previous attempt to buy and move the Preds allowed those two clubs to make their case to the rest of the clubs and Bettman is acting on a sense of the Board’s feelings, not on his own whim or any personal sense of vindictiveness he has (not that it might not exist).

In other words, I don’t share your view of how the owners might operate, your thinking that they wouldn’t care about what Buffalo and Toronto want. I think they tend more often than not to have relatively unified positions. If they had changed their collective minds on Balsillie, Bettman would have approached him to buy the Coyotes long ago and he would not be going behind the league’s back in making a deal with Moyes.

It may sound quaint but one of the cornerstones of bankruptcy law is the concept of “the honest debtor.” It seems to me that the Coyotes’ filing is a transparent attempt to evade the Glendale lease provisions and enable Balsille to move the team.Bettman also says that no creditors are demanding payment or calling in their loans so it would not surprise me if the bankruptcy judge rejects this filing.

If that happens, Bettman should then announce that the league is awarding an expansion franchise in southern Ontario at some unspecified time in the future with the clear implication that no bid from Jim Balsille will ever be accepted.

Stu, Maybe the Coyotes qualify as a toxic asset and the financial instituions holding their paper will get some federal bailout money– if they haven’t already — to keep hockey in the desert. Maybe they can do the same for Nashville and Long Island, for that matter.

Speaking of Nashville, do you think it is possible there will be a backlash from the owners against Bettman based on the “Boots” Del Biaggio fiasco? If I recall correctly, Bettman pleaded ignorance to the whole affair, including the loans to Del Biaggio from owners in his “inner circle.” I’m not familiar with the specifics of Bettman’s plausible deniability plea in the Nashville case, but it seemed the situation had the potential to unravel into the NHL’s version of Watergate. Then the whole thing just kind of vanished. Has this been mopped up with the owners?

We’ll see, Stu. I would love to know what the owners’ reasons for rejecting this offer would be. How many times can you turn down a smart business decision because the guy who wants into the club, wont prostate himself to the Club’s insularity?

I personally couldnt care less where the Coyotes end up, if anywhere. But I *am* hoping for a crazy litigation where all sorts of documents and facts come to light about the backroom shenanigans that go on with these megalomatic businessmen.

Stu, some of my highly reliable sources tell me Balsillie has made simultaneous purchase offers on every team in the Northeast Division, and, should those offers be accepted, the territorial incursion question will become moot.

Some of my other sources, though, say that should the purchase offers be accepted, he will move Toronto, Buffalo, Montreal and Ottawa to Tucson, Flagstaff, Nogales, and Bullhead City, respectively, and form an Arizona Division.

Mike – As I recall, you are right in thinking that Mr. Bettman seemed more involved in Boots’ emergence onto the scene than as a passive observer and he did try to explain it away, but at the moment I can’t recall the specifics of his explanation. I may even have had a note about that and if I can find it, I’ll post the link.

But I think the reason the Boots-Preds fiasco has quieted is that his bankruptcy proceeding has not concluded, which means his piece of the Preds is still in the hands of the court. It will have to be resolved eventually and more will come out about that whole thing.

saget – I can’t tell you what the specifics are of the owners rejection of Balsillie but generally I think they don’t like being coerced into anything, including approving the transfer of a franchise. As you say, it is, after all, their insular “club” and they want to run it and not be told how to run it. They like to run as orderly a ship as possible and avoid loose cannons. My guess is that in their estimation, Balsillie has already proven himself to be one of those, regardless of how much money he has.

Bettman’s brilliant All-Star Game press conference in which reassured us that the Coyotes situation was no big deal because so many NHL franchises have been bankrupt was the source of my blog post on Spin-Jitsu, found here:

JPH – Yes, on one hand, that “un-served market” tag is somewhat disingenuous and designed to paint himself and his bid as underdogs and the region as victimized and hockey-starved, which is a specious characterization.

But on the other hand, that Southern Ontario market is certainly big enough, wealthy enough and interested enough to support a second NHL team quite well.

Balsillie is a real hockey fan, make no mistake, and I believe he still plays competitively at some level. He’s also a very successful businessman and certainly sees a chance to combine to things he loves, hockey and making money. There aren’t many of us who, if we had his wealth, wouldn’t consider doing the same thing, although I’m not sure we’d all go about doing it the same way as he does.

felix – I believe the Winslow area would qualify as an “unserved market” and the citizens there will be clamoring for an NHL club as well. After all, how long can you live off the reputation of being namechecked in an early ’70s Jackson Browne/Eagles hit song?

Southern Ontario can easily add another NHL team and be profitable without hurting the Leafs or the Sabres. (And shouldn’t Detroit be included as a team that would be threatened by this? They are pretty close too.) As a life long Leafs fan, bringing the Coyotes to Hamilton may be the best thing that could happen for us long suffering mislead souls- the Leafs might have an incentive to actually produce a good, marketable product, and who knows, by competing in the free market, they may even win the Cup before I die. Of course, this is the NHL, and they will torpedo the move to Hamilton if for no other reason that it makes good sense. But it’s nice to dream!

This whole scenario is hilarious. Congratulations to Jim Balsillie for taking on this battle. Bettman is a tyrant who attempts to rule his universe through total control. Balsillie threatens that — big time. As these circumstances develop, with the vast majority of Canadian hockey fans, unhappy team owners who don’t want Phoenix/NHL to cost them more money, the NHLPA, and, even, the Canadian prime minister backing Balsillie’s endeavour, it is possible that the NHL’s little general has begun the inevitable march to his — pun intended — Waterloo.

Kevster, Owen, zip – I have no doubt that fans in Canada (and many in the US, myself included) would love to have another team there. As I see it, for the NHL, it’s a question of getting a team there through the processes established by the business itself and not through coercion or trickery.

The league has in fact met with parties other than Balsillie who are interested in bringing a team to Southern Ontario, the PA is in favor of the idea, and it is likely inevitable that it will eventually occur. But it would be a complicated process and while Balsillie’s attempt presents a shortcut that would be welcomed by fans, I think in the owner’s minds he’s demonstrated during his attempts to buy the Pens and Preds that he’s his own guy and not very interested in the complexities of securing a franchise and, after that, being a partner with the other owners.

We as fans who all have a healthy skepticism of the way the NHL works might applaud that and think the NHL needs someone with this maverick approach, but these sorts of maverick owners (George Steinbrenner, Jerry Jones, Mark Cuban, to name a few outside of hockey and a guy like Harold Ballard inside hockey) tend to make life very difficult for the other owners and can impede the way a complicated business like a sports league runs.

I think that is what might motivate Bettman and his supporters among ownership as much as anything, not the concept of having a team in Southern Ontario, which could only help them fiscally.

People with that much money should be allowed to buy crummy hockey teams and do whatever they want with them! Besides, anybody who wants to move them BACK to Canada where they obviously belong is a HERO! (albeit a completely CRAZY hero, see photo above…) The NHL will undoubtedly screw this one up, too,though, and re-locate them in Cuba, Venezuala or maybe nearby Mexico, all hockey hotbeds. Or maybe they can play outside in the old, un-used Yankee Stadium! Everybody loves those goofy out-door “classics”& NYC could use another stupid, crummy hockey team.

I think Mark Cuban was exactly what the NBA needed, especially in Dallas. Same with George Steinbrenner or Jerry Jones. These “mavericks” have been unquestionably more beneficial to their leagues than their minor mishaps might indicate.

I can sense a bit of unease with Jim Balsille’s style. But really, I feel like it’s just someone with common sense (and a huge ego).

Yesterday, George Laraque said how depressing of an atmosphere it was to play in Phoenix. I for one – a Habs fan – tune out when the Coyotes are playing at home as it is like watching a practice.

I have seen a trend, particularly in American media to discredit JB. The NHL is charging 80$ for its playoff package in some regions of the United States, has a handful of (almost) bankrupt teams and plays high profile NHL games early on Sunday afternoons. It kills me. Surely JB can not hurt the NHL any more than it is hurting itself.

Wassim hits the nail on the head. The US media discrediting Balsillie is nothing more than a parroting back of what they are being fed from NHL PR people.

From what I see, reading between the lines, Balsillie felt he
was snookered by Bettman in trying to put the Pittsburgh deal together. Balsillie next set his sights on Nashville, and Bettman, master puppeteer that he is, wheeled and dealed beyond belief to prevent that from happening. Now it’s Phoenix. Bettman’s problem is that, ultimately, enabling the Coyote franchise to remain in the desert is really in no one’s best interests, except, of course, his (Bettman’s) own. The NHL owners may not like Balsillie’s tactics, but he’s offering real money at a critical time. Ultimately this whole deal is going to come down to the owners having to choose between Bettman or Balsillie. Despite Bettman’s waving the flag in regard to Balsilie’s ostensible attack on the NHL constitution (who cares?) or acting in behalf of the forlorn Coyote fans in Phoenix, the reality of the situation is that the others owners and the players will benefit enormously by Balsillie’s owning the franchise and moving it to southern Ontario. I believe this will make all the difference.

Yo schmadrian – your friend is an idiot. Just letting you know… all those teams, when winning, do well at the gate. San Jose is a model franchise. The Isles, if the county ever accepts their rink proposal, could resurrect a great legacy. Tampa, up until this year, averaged more fans than 5 of the 6 Canadian teams. You have 3 of the last 4 Stanley Cup winners on your list. What kind of message does that send to the fans around the league?

Halifax and Saskatoon don’t even have CFL teams. How can they support the NHL? Winnipeg and Kitchener are outposts. What a joke. And is your friend racist? Why not include Quebec City in to his dreams? What about Fredericton or Moncton? Heck, maybe even Vancouver can support a second NHL team seeing as though they are getting an AHL team.

When the Canadian dollar falls back to 0.67 the whole league will collapse. Yeah, great idea.

Southern expansion was, and is, a great way to grow the game. The teams just need to be winning and properly managed. If not, they end up like Quebec City and Winnipeg (insert bitter ironic smile here)

What about this for a scenario…if the courts side with Balsillie.
The court agrees that the interests of the creditors outweigh the rules of the NHL and grant JB the right to the team and the right to move the team. The NHL and Jim Balsillie enter a side agreement to commit to expanding the league in 2011 with a team in Southern Ontario and Kansas City, with JB paying market rate for a franchise in the Southern Ontario. In return, the NHL keeps a team in Phoenix and try to find another owner – reinsdorf maybe and then they negotiation with TO and Buffalo for a team in Southern Ontario. In this way, the NHL keeps a team in Phoenix, JB gets a team in Ontario and the NHL and its owners get franchise fees from two expansion teams – anywhere in the range of 400 – 600 million.

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